DEVELOPING COUNTRIES NEED TRADE / THE WALL STREET JOURNAL OP EDITORIAL

OPINION EUROPE


JULY 6, 2009.


Developing Countries Need Trade


The developed world can help them overcome their supply-side constraints..



By PASCAL LAMY



GENEVA -- We are experiencing the worst economic crisis in 70 years. No economy has been spared its brutal effect and the full human and social impact of what has been wrought is still to come.

Crises such as these often cause governments to reassess their commitments and their priorities. Too often, this has led them to shy away from continuing their efforts to combat poverty and suffering in the developing world through sound aid and trade policies. Trade is a major casualty of this crisis. The steep reduction in trade volumes over the last eight months has subjected many open economies to economic volatility and has led some to question the role of international trade as an engine of economic growth and development.

History tells us that no poor country has ever become wealthy without trade. Moreover, many developing country success stories -- Singapore, South Korea, Chile, China and Malaysia, to name only a few -- have, in recent decades, seen their national incomes grow by a percentage point or more per year as a result of open trade policies than would have been the case had they remained closed. The extra funds generated during this period have enabled them to respond to the crisis with stimulus packages that have prevented the crisis from turning into a protracted recession with its inevitable human costs.

But it is true that trade is not a panacea for everyone, everywhere, every time. For trade to work, governments must have the physical and governmental infrastructure, production capacity and technical skills to take advantage of the market opening opportunities which arise from trade opening. Market opening must go hand in hand with policies that lift people out of poverty and distribute the benefits of trade expansion equitably across and within developing countries. That's why four years ago at a World Trade Organization Ministerial Conference in Hong Kong we launched an initiative we call Aid for Trade. Aid for Trade is all about enhancing growth prospects by helping countries overcome their supply-side constraints and increase their competitiveness and their effective participation in world trade.

Aid for Trade is about helping to integrate developing countries into the global economy and ensuring that they can take advantage of trade opening and greater access to markets for their exports of goods and services. One key component of this is the creation of adequate physical infrastructure -- roads, ports, telecommunications, electricity supply, storage facilities -- to ensure the consistent and reliable flow of goods, services and information that underpin global trade. Another is to ensure that producers are trained in meeting global product quality and safety standards demanded by the world's consumers. Improving physical and human capacity will further assist countries in diversifying their production and reaching new markets.

It's a heady goal to be sure, and the WTO certainly cannot do this on its own. We see ourselves as coordinators, relying greatly on our partnership with international financial institutions, the global and regional development banks and bilateral donors. They take the lead in financing Aid for Trade projects.

The North-South corridor better linking Southern African countries is a good example. This infrastructure project would provide a substantial boost to development and poverty alleviation in the region by addressing the transportation, communications and energy challenges facing Sub-Saharan Africa today. Funds for this project have been pledged from the African Development Bank, the World Bank and various donor countries including the United States, the European Union and Japan. The Mesoamerican plan, which links Central American countries more efficiently through better roads and easier border formalities, is another example, as is the Greater Mekong Sub-region project, which offers Southeast Asian countries a blueprint for better development opportunities in much the same manner.

To improve on our work in this field and to assess the achievements and the needs for the future I have invited the major international financial institutions and regional development banks as well as donors and recipients to Geneva this week for a collective Global Review on Aid for Trade. Our objective is to monitor Aid for Trade flows more effectively; to improve the assessment of the trade development needs of developing countries; to move the focus of our work from pledges of support to getting these projects up and running; to strengthen the regional dimension of Aid for Trade by encouraging more trade between neighboring countries; and to devote additional efforts toward a broader participation of the private sector, private foundations and civil society in this initiative.

Governments have increased their commitments to Aid for Trade by 10% annually since 2005 and funding pledges today stand at more than $25 billion annually. Non-concessional loans add an additional $27 billion to help developing countries overcome production constraints. Importantly, this increase in Aid for Trade has been achieved without reducing resources to other development priorities such as health, education or environment. The global economic crisis threatens such support. And yet making such resources available will be essential to help poor countries be better prepared to exit the crisis.

As G-8 leaders prepare to meet in l'Aquila, Italy, they must remember that Aid for Trade is part of our collective response to the present situation. We have to make sure it is more and more effective in helping developing countries overcome their economic difficulties. It's what people expect from us today.

Mr. Lamy is director-general of the World Trade Organization.

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